Canadian working in the USA

[jodyjaw]

Hi need help i been working in the USA for few years now on a ship in the Gulf of Mexico , 6 weeks on 6 weeks off rotation and for the last few years i have got the overseas tax credit which is great i end up paying around 12% Canadian tax . As of this year the IRS wants a piece of the pie there saying i need to pay full tax to them something in the range of 28% i spend around 188 days per year in the USA minus the travel days so im close to 183 days per year in the USA So i guess the question is what is the 183 day rule with the IRS for paying tax , also well i still have to pay some Canadian tax can i still claim my oversea tax credit if i do, and well the IRS come after me for back tax for the last few years i was down here ? Oh im am payed by a Canadian company . Also im company is deducting around 35% from my pay to cover USA tax can i receive a American tax return if i get one and well that money be taxable to the Canadian govt. as income oh my so many things i don't know and my company also don't know or wont tell me , anyone out there that can help

[Steven]

It doesn't sound as though you're resident in Canada for tax purposes, so I don't understand why you're paying any Canadian tax at all. If you're on a US-flagged vessel and you spend the rest of your time in the US, then you're clearly resident in the US for tax purposes. It sounds like you're being issued a W-2 as well, so you simply file a 1040 like every regular American does and notify the CRA you're non-resident for tax purposes.

The IRS is after you because they keep getting W-2s from your employer but you haven't submitted a US tax return.

If you live in Canada it's a bit of a different situation, you file a 1040NR instead and depending on how long you're in the US, an 8840 (if you're there less than 183 days) or an 8833 tax treaty claim as well. You file for a foreign tax credit with your T1 using forms T2209 and T2036. Because Canadian income taxes are higher you will usually pay some additional tax on top of whatever was withheld in the US, i.e. when you work out your taxes and your foreign tax credit, the credit will be less than the amount you owe in Canada.

This CRA publication explains some of it: http://www.cra-arc.gc.ca/E/pub/tg/p151/README.html

The substantial presence test isn't all that relevant to Canadians because of the tax treaty, it just alters which paperwork you have to file with the IRS.

For more information read IRS publications 519 and 597. Publication 597 is a bit out-of-date, it doesn't mention the new treaty provisions that allow you to keep your RRSP/IRA if you move to the other country.

[jodyjaw]

Thanks Steve , also the ship im sailing on is owned by a American company but flagged under a foreign country and i do live in Canada, i have no ties to The USA other then the ship i work on. The Canadian company i work for have never filed any USA tax papers before this year (w 2s) also i have to pay into the American health care system and there pension , well this benefit me . The only time im on US soil is when i step off the plane get on the crew bus and go to the ship and we go up to 11-12 months without any port calls. So can i get a tax return from the American Govt. and if so is that taxable by the Canadian Govt. ?

[Steven]

I'm not clear on why the IRS are after you, because it sounds to me as though you spend virtually zero time in the US, unless the company you work for is paying into an IRA or something stupid like that because I'm not clear on how the IRS even know you exist. Do you have an ITIN?

The only thing I can think of is that because you are in US territorial waters they have decided you owe them some tax, or someone at the company you work for has put you into an IRA or 401(k) or something which is only available to US taxpayers, which you aren't.

I don't see why you'd benefit from the healthcare provisions either if you spend no time in the US.

I'd have a chat with the IRS and explain the situation to them, because it sounds like someone at your company has screwed up somewhere. To me it sounds as though you should just be getting a T4 and doing a tax return like any other Canadian. Pilots are in a similar situation, because they reside in Canada but work in international airspace, they're taxed as though they live in Canada.

Any tax liability you have in the US can be claimed as a foreign tax credit in Canada on T2209 but I'm not clear on why you are liable to any US tax.

[jodyjaw]

Thanks again Steve

The thing is we spend all our time in American waters i don't have a ITIN
this all came about when all sailors and dock workers in the USA had to get TWIC cards (Transportation Worker Identification Credential) then the irs found out there was a bunch of foreign works just off there coast working and they want there share of the tax i guess. Most country have some kind of tax credit for sailors but when the irs on our tail were kinda screwed. one more question the Canadian company i work for had told me in the beginning when i was hired i would pay Canadian tax and qualify for the over seas tax credit which was the case the last 2-3 years, now the IRS is saying they can come after us for the last 10 years of back tax if we worked in American waters so the question is who is responsible for making sure the tax was paid to right govt. is it me or the company that employs me ?? i cant afford to pay back taxs for the last 3 or so years it would bankrupt me

any idea that could help me ???

Thanks all

[Steven]

Well it's the responsiblity of both you and your employer to comply with the law, they must perform the withholding if necessary and file W-2s, you must file a tax return if necessary regardless of whether the withholding was done propertly.

If you're in US territorial waters then essentially you're a US employee unless there's tax treaty provision that exempts you that I'm not familiar with.

Because you clearly live in Canada and 100% of your employment is in the US, then effectively your employer should be doing the withholding, you file a W-4 with them, they report the withholding and give you a W-2 every year, and you file a 1040NR with the IRS to report the income. Then in Canada on your T1 you claim a foreign tax credit using form T2209.

If they fail to do it, it's a messy situation, basically you work out how much tax you owe and pay the IRS and then claim a foreign tax credit. The IRS absolutely hate that and will come down on your employer like a ton of bricks, so I suggest talking to your HR dept. about it and make sure they've got an EIN. Better yet, fill in a W-4 and send it to your employer and tell them the IRS asked you to do it, that might wake them up. In the answer to question 6, put down: "non-resident alien".

You will need to get an ITIN as well, fastest way is to file W-7 with the IRS and say you need it to make a tax treaty claim, check box "a" on the form.

I'm not sure what the immigration situation is either if you're in US waters the whole time on a foreign-flagged vessel. I suggest your employer hires some lawyers PDQ. Whatever happens to you is going to be much, much worse for them if they're supposed to be doing US payroll withholding and they're not. It's one thing to not file a tax return, it's a much worse situation to not actually pay the IRS on time, which they're not.

What it sounds like to me is that they've been doing withholding to the wrong country, God knows how they sort that out this late in the day.